Term and Legal Definition of Issuer
The Term Issuer (German: “Emittent”) refers, in legal terms, to a natural or legal person who issues or emits securities, financial instruments, or electronic means of payment. The legal significance of the issuer is especially relevant in capital markets, banking and payment services law, as well as corporate law. The issuer assumes a variety of statutory duties towards investors, supervisory authorities, and other market participants and may be liable under certain circumstances for compliance with statutory regulations.
Legal Basis and Regulations
Capital Market Law Classification
In capital market law, the issuer is the entity that first issues securities, such as shares, bonds, debentures, or certificates (primary market). The main regulations arise in particular from:
- the Securities Prospectus Act (WpPG)
- the Securities Trading Act (WpHG)
- Regulation (EU) 2017/1129 (Prospectus Regulation)
- the Commercial Code (HGB)
- the Stock Corporation Act (AktG)
- the Stock Exchange Rules
The identity of the issuer is of essential importance for all disclosure obligations, follow-up obligations, and responsibilities.
Issuer in Banking and Financial Law
In banking and payment law, the term issuer is often used in connection with the issuance of payment instruments, for example, the issuer of credit cards or e-money. Essential regulatory areas include:
- Payment Services Supervision Act (ZAG)
- Act on the Supervision of Payment Services and E-Money Institutions
- Regulation (EU) 2015/2366 (Second Payment Services Directive, PSD2)
In payment transactions, the issuer is typically the institution that maintains accounts or clearly allocates payment instruments (e.g., cards, tokens).
Corporate Law Dimension
For equity securities, particularly shares and GmbH interests, the issuing company itself is the issuer. Corporate law, in particular the Stock Corporation Act (AktG), GmbH Act (GmbHG), and German Transformation Act (UmwG), regulate requirements, formalities, procedures, and consequences of the issuance.
International and European Law
In an international context, the obligations of an issuer arise, among others, from directives and regulations of the European Union, for example, MiFID II, MAR (Market Abuse Regulation), and the Transparency Directive. Issuers operating internationally are often oriented toward multiple legal systems, such as in the case of multinational stock market listings.
Legal Obligations and Responsibilities of the Issuer
Prospectus Requirement and Disclosure
Among the central obligations is the prospectus requirement under the WpPG and EU Prospectus Regulation: Before the public offering of securities, the issuer must prepare, publish, and have a securities prospectus approved by the competent authority. The prospectus must contain all information essential for the investment decision (i.e., a complete, accurate, and comprehensible presentation).
Ad Hoc Disclosure
According to the WpHG and MAR, the issuer has the obligation to immediately publish price-sensitive, non-public facts (ad hoc disclosure) to prevent insider trading and market abuse.
Ongoing Reporting
Issuers are obligated to regularly disclose financial figures (annual and semi-annual reports, quarterly figures) and significant company events. These transparency requirements are governed by the Transparency Directive Implementation Act (TUG) and the respective stock market segments.
Corporate Governance and Compliance
The issuer is responsible for ensuring compliance with internal codes of conduct, regulations, and statutory requirements (compliance). This applies in particular to capital market-oriented companies as well as banks and payment service providers.
Liabilities and Sanctions
In the event of violations of disclosure obligations, faulty prospectuses, or other breaches of duty, the issuer may be liable for resulting damages, both under civil law to investors and under regulatory law to the supervisory authorities. Possible consequences include fines, disgorgement of profits, and in severe cases, criminal sanctions.
Legal Status of Issuers in Different Roles
Public Sector as Issuer
Public institutions, regional authorities, and central banks also frequently act as issuers, for example when issuing government bonds or municipal debentures (“government bonds”).
Banks and Financial Institutions
Banks act both as their own issuers of capital instruments and as service providers in third-party placements for other issuers (e.g., as syndicate leaders).
Technological Issuers in the Digital Market
In the context of digitalization, the role of the issuer in relation to electronic securities, security tokens, and crypto-assets is becoming increasingly important. Here too, special regulatory requirements apply, for example under the Act on Electronic Securities (eWpG) and statutory implementation of EU market regulations.
Distinction from Other Terms
Issuer vs. Placement Institution
While the issuer is the legal publisher of a financial instrument, the placement institution (often a bank or broker) is responsible for marketing and placing the securities with investors.
Issuer and Payment Procedures
In payment transactions, the issuer of a card is the card issuer (e.g., bank), while the acquirer is the receiving institution at the merchant.
Legal Development and Current Challenges
The role of the issuer is subject to constant change. In particular, digitalization (electronic securities, tokenization), increased regulation, internationalization of the capital markets, and the requirements for sustainable corporate governance (ESG reporting) are continuously influencing the duties and responsibilities of the issuer.
References and Further Information
- Securities Trading Act (WpHG)
- Securities Prospectus Act (WpPG)
- Regulation (EU) 2017/1129 (Prospectus Regulation)
- Market Abuse Regulation (MAR)
- Payment Services Supervision Act (ZAG)
- Act on Electronic Securities (eWpG)
- Stock Corporation Act (AktG)
- GmbH Act (GmbHG)
Summary
The issuer is a central figure in capital market, banking, and payment services law. Their main tasks include the issuance of securities or payment instruments as well as the comprehensive fulfillment of statutory disclosure and reporting duties. Compliance with regulatory requirements serves investor protection, market transparency, and the prevention of market abuse. Due to ongoing legal and technological developments, the role of the issuer is at the center of numerous adaptation processes.
Frequently Asked Questions
What legal obligations apply to an issuer in connection with the issuance of securities?
In the context of a securities issue, the issuer—the entity issuing the securities—is subject to a variety of statutory and regulatory requirements, which may vary depending on jurisdiction, type of securities, and market segment. In the European Union, the Prospectus Regulation (EU) 2017/1129 and the Securities Trading Act (WpHG) provide the legal framework. The issuer is obliged to adequately and fully inform potential investors prior to the acquisition of securities, which is typically achieved by preparing and publishing a prospectus containing all material information about the company, the offered securities, and the associated risks. Furthermore, for listed securities, ongoing publication obligations (e.g., ad hoc disclosures, financial reports) must be complied with. Breaches of these obligations may result in civil claims for damages by investors, supervisory sanctions (such as fines by BaFin), and even criminal consequences.
What liability risks does an issuer face for incorrect or incomplete information?
An issuer is liable under civil prospectus liability for incorrect, incomplete, or misleading statements in the issuance documents, especially in the securities prospectus. The German Securities Prospectus Act (WpPG) and the EU Prospectus Regulation provide that investors can claim damages if they suffer losses due to false or misleading information in the prospectus. In parallel, capital market law information obligations (for example, in the context of ad hoc disclosures pursuant to § 15 WpHG) also entail liability risks; intentional or negligent violations of these obligations can result not only in civil liability but also in regulatory and criminal consequences for the issuer and, if applicable, the acting persons.
What regulatory approvals and procedures must an issuer comply with?
Before the public placement of securities, it is regularly necessary for the issuer to have the securities prospectus approved by the competent supervisory authority— in Germany, the Federal Financial Supervisory Authority (BaFin). The approval process involves reviewing the prospectus for completeness, comprehensibility, and coherence. In some cases, additional approvals from other authorities (e.g., stock exchange admission office, if a listing is applied for at an exchange) are required. EU-wide, the so-called “passporting” allows cross-border distribution after approval by a national authority. Non-compliance with the required procedures can render the issuance ineffective, result in delisting, and lead to significant sanctions.
What ongoing transparency obligations does an issuer have after issuance?
After the placement and listing of securities, the issuer is obliged to fulfill extensive ongoing transparency obligations. These include, in particular, the regular publication of financial reports (annual financial statements, semi-annual financial report pursuant to §§ 114 ff. WpHG), the prompt publication of price-sensitive insider information in the context of ad hoc disclosures (§ 17 MAR and § 15 WpHG), voting rights notifications pursuant to § 33 WpHG, and, if applicable, notifications regarding directors’ dealings under Art. 19 MAR. Failure to meet these obligations may result in regulatory measures, reputational damage, and claims for damages.
How is investor protection implemented through regulatory requirements for the issuer?
The regulatory requirements are primarily aimed at ensuring a high standard of investor protection. The issuer is obliged to provide all essential information completely, accurately, and not misleadingly (§ 5 WpPG, Art. 6 and 7 of the Prospectus Regulation). Additionally, the information must be prepared in clear language and presented in a way that enables the average investor to make an informed investment decision. Even after issuance, ongoing disclosure and notification obligations ensure transparency and protect the market and investors from abuse and disadvantage due to insider information.
What sanctions may an issuer face for violations of capital market obligations?
If the aforementioned capital market obligations are violated, the issuer may face various sanctions. Supervisory authorities (such as BaFin) can impose fines, prohibit issuances, or suspend or revoke already issued securities from trading. In addition, civil liability to aggrieved investors or competitors (within the scope of the UWG) may also apply. Severe or intentional violations (e.g., market manipulation, insider trading) may result in criminal penalties, ranging from fines to imprisonment.
Are foreign issuers also subject to German capital market regulations?
Foreign issuers are subject to German capital market regulations if they publicly offer securities in Germany or have them admitted to trading on a German stock exchange. The provisions of the Prospectus Regulation and WpHG generally apply equally, whereby the prospectus approval can also be granted by a foreign authority of an EU member state (“passporting”, Art. 25 Prospectus Regulation). In addition, country-specific features and any requirements of the respective stock exchange must be observed. Compliance with German obligations in cross-border offers is regularly monitored through cooperation between the authorities.
